Venezuela says it will make debt payments despite 'difficulties'

CARACAS (Reuters) - Venezuela will make all pending debt payments despite “a series of difficulties” that have arisen as a result of financial sanctions by the United States, Economy Vice President Ramon Lobo said on Thursday.

The United States in August prohibited dealings in new debt from Venezuela and state oil company PDVSA in response to the creation of a new legislative superbody that critics call the consolidation of a dictatorship.

The sanctions did not block banks from serving as intermediaries in debt payments, but the government of President Nicolas Maduro has said they are interfering with the country’s finances and threatening to lead it toward default.

“We are going to meet our commitments. We have come across a series of difficulties, but that will not stop us,” Lobo said in a news conference. “There is an order to impose a financial blockade so as to put us in a situation of insolvency, which is completely out of the question.”

He did not offer details.

Financial institutions have in recent years grown wary of doing business with Venezuela even before recent sanctions, due to concern that Venezuelan funds might be associated with money laundering and drug trafficking, and a growing risk of debt default.

PDVSA and its U.S. unit Citgo Petroleum are facing difficulties in obtaining the letters of credit needed to export and import oil cargoes on the spot market.

Even though banks have maintained some existing contracts to provide paying agent services on Venezuela and PDVSA bonds, the company has switched to other banks to secure debt service payments for certain bonds.

Asked about media reports that PDVSA is selling oil in euros rather than dollars in response to sanctions, Lobo said the company “has been working on that for some time.”

PDVSA has asked some partners in joint ventures to change the preferred currency for routine transactions to euros instead of dollars, two traders from companies operating in Venezuela said on Thursday. The talks have not yet led to modifications in the contracts.

In 2008 PDVSA said it had started using the euro for some sales. But its impact was very limited as most long-term contracts signed by the company use the dollar, even in the price formulas.

The country’s deep economic crisis and flailing socialist economy have spurred concerns about default, leaving its bonds heavily discounted. Maduro said that Venezuela has never missed a debt payment under the ruling party.

Reporting by Deisy Buitrago in Caracas, with additional reporting by Marianna Parraga in Houston; Writing by Brian Ellsworth; Editing by Lisa Shumaker and Phil Berlowitz